Commodity Price Volatility, External Debt and Exchange Rate Regimes

34 Pages Posted: 17 Dec 2020

See all articles by Monoj Kumar Majumder

Monoj Kumar Majumder

Sher-e-Bangla Agricultural University

Mala Raghavan

University of Tasmania

Joaquin Vespignani

University of Tasmania - School of Economics and Finance

Date Written: December 17, 2020

Abstract

This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three-times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigate the effects of commodity price volatility on external debt accumulation.

Keywords: Commodity price volatility, external debt, commodity-exporting countries, exchange rate regime

JEL Classification: E62, F31, F34, G01

Suggested Citation

Majumder, Monoj Kumar and Raghavan, Mala and Vespignani, Joaquin, Commodity Price Volatility, External Debt and Exchange Rate Regimes (December 17, 2020). CAMA Working Paper No. 110/2020, Available at SSRN: https://ssrn.com/abstract=3750525 or http://dx.doi.org/10.2139/ssrn.3750525

Monoj Kumar Majumder

Sher-e-Bangla Agricultural University ( email )

Sher-e-Bangla Nagor
Dhaka, 1207
Bangladesh

Mala Raghavan (Contact Author)

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Joaquin Vespignani

University of Tasmania - School of Economics and Finance ( email )

Commerce Building,
Sandy Bay Campus
Sandy Bay, TAS, Tasmania 7005
Australia

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